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Franchising Basics
Franchising has become the one of the hottest business trends for entrepreneurs, budding and seasoned alike. Popular for its "turn-key" feature, franchising has become synonymous with the relatively painless setting up of businesses and "guaranteed" success. What could be better than to capitalize on ventures that have proven themselves successful, right? True, but business-hopefuls should know that there is much more to franchising than just paying a fee and building a store.
Just what is franchising anyway?
Franchising Defined
If you want to be technical, dictionaries list franchise as "the right or license granted by a company to an individual or a group to market its products or services." This is exactly how Mr. Isaac Singer of Singer Sewing Machines pioneered the strategy. While he was on top of manufacturing, Mr. Singer was desperate for help in selling and servicing his sewing machines. Out of this necessity came a brilliant idea to grant rights to interested individuals to sell his products, and at the same time, train them on how to service the machines. And this is how product distributorship, one of the four types of franchising, came to be.
Other types of franchising are business format franchising, conversion franchising and multi-branding franchising.
Their Business, Your Business
As a franchisee, you are buying into the success formula established by the franchiser. As such, it is in their interest to make sure their formula is carried out to a tee or within certain parameters. This is to guide you step by step towards success, since your triumph (or failure) reflects on them as well. Everything from site location to store operations will be evaluated thoroughly to comply with the company's direction or brand's image.
While franchisees are in charge of their stores operations, plans for your franchise are usually dictated by the parent company or at least, should be tailored in conformity to the company's directions. Individuality is a no-no in franchising.
The Best Franchise for You
If you believe that franchising is for you, the crucial first step is to determine which business to franchise. Here are a few tips:
- Go with something you know and like. For this, take stock of your interests, hobbies, passions, as this is a good way to know what you will enjoy doing. Corny as it sounds, there is truth to the saying "Do what you love and you won't have to work a day in your life."
- Know your budget. Compare how much you have and how much it would require to put up your dream biz. Surprisingly there are a lot of promising ventures you can get into with just P500,000. Take a look at our franchise info page a list of franchises by budget.
- Do your research. Learn all you can about your prospective business by calling the company, visiting their website or even dropping by existing franchises. Talk to franchisees and ask them about their experiences. Know what exactly is included in the franchisee fee or package, and what company regulations you have to follow. Ask how long it usually takes to build your store, gain customers and get your ROI (Return On Investment). Know how long has the company been in franchising and how many branches they have to get an idea of your chance for prime locations and rate of return. Gathering information and weighing your options are important in making an informed decision.
- Consult experts. If you are new at franchising, don't attempt to go through it by yourself. Even with your business acumen, there are bound to be a few things you might overlook which may cost you in the long run. There are people who can guide you through the franchising process.
- Know yourself. Consider your strengths and weaknesses and how these affect your potential franchise. Does your body clock coincide with their store hours? Are you willing to be on call at any time? How are your problem solving skills? How patient are you? Also, clarify your goals for getting into business. In it for the money, prestige, the experience? What are you willing to do to achieve your goals? How long are you willing to wait? Answering these questions can help you streamline your choices and simplify your task.
Franchising Today
It is not surprising that franchising has become a popular way of both expanding and setting up businesses in the Philippines. Once only practiced by bringing in foreign brands to the country, it is interesting to note that from its inception in the 1970's, the number of homegrown franchisers has now swelled to over 200. This has helped our local business expand operations and widen their reach to key cities in Metro Manila and the provinces. At the same time, these franchisers have opened the field to more entrepreneurs, a golden opportunity, even for those armed only with determination and less than half a million in their pockets.
AFFI has taken upon itself the responsibility of professionalizing and standardizing the franchising industry. Composed of 32 well-respected businesses, AFFI aims to assist more fellow entrepreneurs in realizing their business potential through franchising.
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Think small, earn big
These days a franchise can be bought and opened for half the price of a Japanese car. The return on investment is between six months and a year.
"In franchising, you sell a business model with a proven track record and the systems that go with it. The success rate for franchises is 65% while the success rate for independents is 12%", said Association of Filipino Franchisers, Inc. president Pacita Juan.
The majority of the 50 participants are in the food business. Non-food franchiser-exhibitors include those in the laundry, nursery school and IT businesses. There's also a section for start-ups or small businesses without a franchising program but which would like to get a feel of the market and gain confidence.
"The start-up is a litmus test. If a start up can get 100 inquiries on franchising, that a good sign that maybe the business should take the next logical step," said Juan who co-founded Figaro Coffee Company.
Young Group
AFFI started out four years ago as the First Filipino Franchise Federation. It changed its name to AFFI last year after it cleaned its membership list of absentees.
"One of our come-ons for membership is the support group or guerilla networking. It's important that the entrepreneur - and not the business development manager - attends our monthly meeting. We discuss real problems that small businesses face and, because we're all the same level in terms of size, we're not shy about asking for help from each other," said Juan.
Just recently, AFFI was accredited by the Small Business Guarantee Loan Fund for a loan facility that would allow potential franchisees to borrow money without collateral. The AFFI member is the co-signatory of the borrower, who must first present a certification that he/she tried to borrow from a bank and was turned down because he/she didn't have enough collateral.
 SBGFC will lend up to 80% of the investment cost, after the franchise fee is deducted. The franchisee has to shoulder the one-time upfront franchise fee, which starts at P100,000 for franchiser-members of AFFI. Assuming the investment cost of the property and the equipment adds up to P300,000, the would-be franchisee can borrow up to P240,000 from SBGFC at an interest rate of 3% over the treasury bill rate. The would-be franchisee would have to raise the balance of P60,000 (plus the franchise fee) on his own.
The first tranche of the SBGLF facility is P100 million, of which P10 million will be allocated to each qualified franchiser. Since they have small investment costs, AFFI members will be able to co-sign with more would be franchisees.
"The co-signatory provision shows the level of confidence AFFI members have in their businesses. If the franchisee defaults on his SBGFC loan, the AFFI member will have to take over the franchisee's outlet and make it viable so he can pay the loan. For us, repaying the loan is a sure thing," said Juan. -MJGrey
Filipino brand names up for grabs
Philippine Daily Inquirer, Business Section
Friday, August 2, 2002 Page B16
Want to put up a business but don't know where to begin? Then getting a franchise may be the best option.
In the world of franchising, one can instantly gain access to an established name and tested business system, all for an up-front fee. Simply put, franchising allows one to buy into the success of a known brand.
The biggest chains - global brands as McDonald's, Pizza Hut, Dunkin Donuts, Kentucky Fried Chicken, and local giants such as Jollibee, Max's, Tropical Hut, Goldilock's, Aristocrat - all grew via this route.
Granted, a franchise of these top names means an investment in the steep, seven-digit category. But the good news is that the neophyte businessman, who is usually more guts than budget, can wade into franchising waters for as little as P50,000.
The key is to look at a growing number of seasoned, Pinoy-run businesses that are becoming available for franchising.
The First Filipino Franchise Show held recently at the SM Megamall's Mega Trade Hall showcased myriad local names that are literally up for grabs. There were food firms like Balay Bacolod, Binalot, Brother's Burger, Cabalen, Figaro Coffee Company, Family Fried Chicken, Goto King, Hap Tian, Potato Corner and Tacomio.
There were also service and retail companies such as ACT Electronic Center, Freeway, Foto-Me, Metropole Laundry and Dry-Cleaners, Net Surfers Club, Pharmashoppe, Reyes Haircutters, Spoofs Ltd, Tips n' Toes and World Link Couriers.
The exhibition was organized by the Association of Filipino Franchisers Inc. (AFFI). Of the roughly 60 participants, 25 are AFFI members.
 Pacita Juan, president of AFFI and CEO of Figaro Coffee Co. explained that the fair was envisioned "to give small and medium-scale players a venue to showcase their offerings, and to encourage retailers to see franchising as a way of expanding."
AFFI is open to firms that are wholly Filipino-owned, are capitalized at below P50 million and have operated successfully for at least six months.
"We are the only group to pool together small and mid-sized local companies into a franchise show. There are other fairs which include the big names, the international names, but we wanted something in its purest form," Juan explains.
Affordable
AFFI members are encouraged to keep their franchise fees affordable, and a quick survey of its members show this to average at roughly P150,000.
As AFFI's flyer points out, franchising is usually a win-win situation. The franchiser is able to expand by letting other committed entrepreneurs use his trademark and put up the capital for a new branch.
The franchisee, meanwhile, is ensured a higher success rate, given a know brand and tested business system.
There are added bonuses in the package if the franchiser is a mid-sized, homegrown operation. Since the franchiser is not huge, "both sides relate to each other as co-entrepreneurs," Juan notes.
And often, the relationship turns personal as franchisers are on call 24 hours a day.
"We get calls in the middle of the night if a problem crops up for the franchisee, " she recounts, smiling. "Usually what happens is the franchisee gets to know us; they meet our families, our spouses; they know where we live…"
While the setup allows franchise to shortcut the learning curve, there is still a lot of grunt-work required. As in any venture, success is not guaranteed.
She also cautioned investors on fly-by-night operators. As she says, when it's too good to be true, chances are it is. "The P10,000 franchise is a myth," Juan says.
Apparently, AFFI has received reports of some unscrupulous quarters that offer business franchises for as low as P10,000. As it turns out, these payments are mere "reservation fees" and some investors end up being fleeced of P100,000 or more, with still no franchise in sight.
AFFI's smaller members charge as low as P50,000 and Juan notes that it is nearly impossible to bring it down lower that that. Given the hard work that goes into systematizing operations and brand building, it would be ludicrous to expect a businessman to sell his expertise for a paltry amount.
Safeguards
Armando Bartolome, president of GMB Franchise Developers and an AFFI stalwart, reveals these so-called "franchise operators" usually avoid introducing the investor to the owner of the business, parody the name of a know brand to ride on its success, and even refuse to issue receipts.
Bartolome stresses the need to police and safeguard the local franchising industry. "That's one of the main and most important roles of AFFI," he says. The organization is careful to screen its membership and has established ethical standards among its ranks. This is among the reasons the group has been accredited with the Small Business Guaranty and Finance Corporation (SBGFC) under the Department of Trade and Industry.
"Eventually, our vision is to establish AFFI as the seal of good housekeeping, a stamp that shows this company is in compliance with good business practices," Juan says.
Juan also tells investors to "go into business that you like - you should use, buy or eat the products yourself. Don't get a Figaro franchise if you don't drink coffee!", she illustrates. This way, the franchisee gains a more enjoyable, if still unpredictable, business experience.
To help guide new franchisees and yes, franchise owners, AFFI has come up with the Franchise Times.
Says Juan: "All the books are from the US or Britain. We saw the need for a publication with local color." Each monthly issue will feature encapsulated "Franchising 101" articles.
If the crowd in the franchise fair was any indication, there appears to be a growing interest in local franchises. Juan cites the slowing economy and rock bottom interest rates as the main impetus for this trend, as Filipinos look for investment - and employment - alternatives.
"You have people exiting companies on early retirement packages, and that money will only make 2 to 3 percent. AT least if you put it in a business, you have a chance of making a higher return."
And then there is also the dignity of ownership. Whether one has been recently laid off or is merely looking of an alternative to corporate life, Juan notes that "it just feels good when you can say 'I have my own business'." (AFFI can be reached at tel. No. 813-5836 or email:
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9 Steps to building your dream business
Manila Standard, My Money Section
Thursday, September 2, 2002 Page B16
Franchising is the easiest way to make your business dreams come true. It requires less capital but allows you to avail of marketing, advertising and promotional support from your principal . You don't have to start from scratch as the product you will be selling is prepared and handed to you almost on a silver platter.
That is not to say that everything will be smooth sailing. The following are a few points to consider before setting up your business.
Before You Begin
Before you even consider franchising, take the time to carefully evaluate yourself. Know what your goals are for getting into business, and what type of businesses you prefer so you can determine if a franchise opportunity has the components you want. It is important that you have a clear picture of what the future will be like for you as a business owner.
Go with something you know and like
Remember, this business is something you are going to commit to, spend money on and do on a daily basis. Take stock of your interests, hobbies, passions, as this is a good way to know what you will enjoy doing. Corny as it sounds, there is truth to the saying "Do what you love and you won't have to work a day in your life."
Know your budget
Compare how much you have and how much it would require to put up your dream business. Pick a venture that would still leave you with a decent bank balance. Surprisingly, there are a lot of promising ventures you can get into with just P500,000. Log on to the AFFI website for a list of franchises by budget.
Know yourself
Consider your strengths and weaknesses and how these affect your potential franchise. Does your body clock coincide with their store hours? Are you willing to be on call at any time? How are your problem solving skills? How patient are you? Also, clarify your goals for getting into business. In it for the money, prestige, the experience? What are you willing to do to achieve your goals? How long are you willing to wait? Answering these questions can help you streamline your choices and simplify your task.
Investigate
Get to know the company. Learn all you can about your prospective business by calling the company, visiting their website and meeting with them. Know how long has the company been in franchising and how many branches they have to get an idea of your chance for prime locations and rate of return.
Meet the Franchiser
Aside from meeting with franchise personnel of the company, be sure to get to know those people you will be working most closely with as you build your business. The President of the company is most likely an impressive person, but that's not who will be answering your call when you have a problem. Find out who will be providing the operational support and training directly to you and form an opinion about their competence. Make sure that any remaining questions or issues you may have are addressed at this meeting.
Talk to franchisees
The most valuable source of information on any franchise system is the existing franchisees. The truth is the prevailing attitude and concerns of the existing franchisees will almost certainly be your attitude and concerns if you decide to become a franchisee. Visit with a sufficient number of the existing franchisees to ensure you have a sense of the prevailing attitudes of the group.
While you want to note that majority of franchisees to be happy and supportive of the franchiser, it would also be a plus to talk to an unhappy franchisee during your investigation. Listen to the complaints but also try to determine what makes this franchisee different from the rest. If you find you identify with the positive ones and feel the negative franchisee is not at all like you, then you should be fine. If you find that you are more like the person who is unhappy however, this is probably not the right franchise for you.
Consult experts
If you are new to franchising, don't attempt to go through it by yourself. Even with your business acumen, there are bound to be a few things you might overlook which may cost you in the long run. There are people who can guide you through the franchising process and help you review and discuss unfamiliar topics or material.
Make Your Decision
Now that you've finished your investigation and have all the information you need, it is time to determine if this franchise is right for you. It either is or it isn't, and you'll know which it is. In either case, it is time to make a decision and move on. If this company has everything you wanted, do it. If it doesn't, eliminate it and go to the next one. Don't settle for anything less.
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Entrepreneur Philippines recently recognized the Association of Filipino Franchisers Inc. (AFFI) members Rommel Juan and Paulo Tibig as among the top 10 outstanding entrepreneurs of 2005 during its Entrepreneur 10 awards last October 25, 2005 at the RCBC Plaza in Makati City. 
AFFI PRO Rommel Juan of Binalot is a third generation entrepreneur, coming from a clan known for its successful business ventures. Rommel set up Binalot in 1996 with his brother and a friend, after recognizing the need for a truly Pinoy fast food brand. Utilizing his knack for marketing as well as his inherent entrepreneurial skills, Rommel transformed his childhood memories of picnic meals wrapped in banana leaves into the unique concept that is Binalot. In nine years, Rommel has developed Binalot into a strongly recognized brand. Binalot has 18 outlets all over the metropolis, with five more to open next quarter. 
For the second year in a row, the Association of Filipino Franchisers Inc. (AFFI) has been honored with the distinction of having its president included in the roster of finalists for Ernst and Young’s 2004 Entrepreneur of the Year (EOY) Awards. 
The criteria included growth in turnover, profit and employee number and degree of innovation, development of creative and indigenous production, marketing and selling techniques; and extent of expansion into local and international markets.